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ISAS PROJECT

Presented by:

Group-2AmulyaPraveenNilesh

NarenderMansoorSrikanthSalma

SATYAM AND ENRON DEBACLE

Contents

•Satyam and Enron Debacle.•What happened in these companies.•Fudging in balance sheet books.•What practices came after this debacle.•How can it be handled by reconciliation.

ISAS PROJECT

Satyam Computers Ltd.

Founded by B. Ramalinga Raju in 1987Fourth largest IT outsourcing company of India.Employees more than 50,000 people in India.High global reputation.Offers services to more then 500 MNC’S.

Problems begin

•16th Dec 2008 thumbs down •World bank barred services•Share prices plunges down•7th Jan 2009 Raju’s confession of over Rs

7800 Crores•“IT WAS LIKE RIDING A TIGER WITH

OUT KNOWING HOW TO GET OFF WITHOUT BEING EATEN”.

What happened in Satyam Computers

From past 7 years accounting books were cooked:1. Profits were inflated. 2. Understated liability and overstated debts.3. Accrued interests.

How did it Happened

FLOATED TWO OTHER COMPANIES FOR THEIR OWN PURPOSE .WITHOUT TAKING PERMISSION OF THE SHAREHOLDERS.FAILED TO REPAY THE LOANS.TRANSFER OF MONEY.INSIDER TRADING.

Fudging in Balance Sheet books

THE BALANCE SHEET AS OF SEPTEMBER 30, 2008 SHOWED-INFLATED (NON-EXISTENT) CASH AND BANK BALANCES OF RS. 5040 CRORE (AS AGAINST RS. 5361 CORE REFLECTED IN THE BOOKS)AN ACCRUED INTEREST OF RS. 376 CRORE WHICH IS NON-EXISTENTAN UNDERSTATED LIABILITY OF RS.1230 CRORE ON ACCOUNT OF FUNDS ARRANGED BY MR RAJU.

Fudging in Balance Sheet books

AN OVERSTATED DEBTORS POSITION OF RS. 490 CRORE (AS AGAINST RS. 2651 CRORE REFLECTED IN THE BOOKS)FOR THE SECOND QUARTER SATYAM REPORTED A REVENUE OF RS.2700 CRORE AND AN OPERATING MARGIN OF RS.649CRORE (24% OF REVENUES)AS AGAINST ACTUAL REVENUE OF RS.2112 CRORE AND AN ACTUAL OPERATING MARGIN OF RS.61 CRORE (3% OF REVENUES)THIS HAS RESULTED IN ARTIFICIAL CASH AND BANK BALANCES GOING UP BY RS. 588 CRORE IN Q2 ALONE.

Fudging in Balance Sheet books

Company Motto: “Respect, Integrity, Communication and Excellence”

Enron Inc

Formed in Omaha, Nebraska,USA by Merging with Houston Natural Gas in 1985 Kenneth Lay changed the name to ENRON.The fifth largest company in US.Principle Assets of Enron, Power Plants, Pulp & paper, Pipelines, Electric utilities and distribution, Broadband asset and bandwidth trading.And had promising future ahead.

What happened in Enron

oEnron used SPEs to hide billions of dollars of debt.oEnron’s profits were the product of accounting fraud.oEnron officers used their political clout affect policy, e.g., electricity deregulation.oTop management, auditors, and banks were all part of the conspiracy.

• The bankruptcy of Enron shook the entire system. Some highlights brought about when this scandal had been exposed were:

• $30 million of self dealings by the chief financial officer.• $700 million of net earnings disappeared.• $1.2 billion shareholders equity disappeared.• Over $4 billion in hidden liabilities.

• “Enron’s unspoken message was, ‘Make the numbers, make the numbers, make the numbers—if you steal, if you cheat, just don’t get caught. If you do, beg for a second chance, and you’ll get one.”

What happened in Enron

Practices came after this Debacle

The US Congress enacted the sarbanes oxley act on 1st July 2002.

Public co. accounting oversight board created by sarbanes oxley’s act to supervise the auditors of public companies.

Changes in the stock exchanges regulations by SEC.

Announced a new governance proposal.

Key section of SOX

•Section 302- Corporate responsibilty for financial report.

•Section 404- Management assessment of internal controls.

•Section 802- Criminal penalties for altering documents.

Reconciliation

Reconciliation was highlighted by Sox as key measure post Enron

Reconciliation is a measure to compare two sets of balances from different sources to ensure authenticity in GL balances at any point of time

What to Reconcile?

Why Reconciliation

Good Accounting Process

Sarbanes Oxley act

Internal control Measures

Audit of Financial statements

Conclusion

Nothing was right on both the sides of Balance Sheet and finally nothing was left

Sarbanes oxley Act Reconciliation to control frauds “Every fraud could have been prevented if

honest people had asked the right questions”

“In the end, you are measured not by how much you undertake, but by what you finally accomplish.”

-Donald Trump

THANK YOU!